WIND ENERGY SYSTEMS - Cd3wd
WIND ENERGY SYSTEMS - Cd3wd WIND ENERGY SYSTEMS - Cd3wd
Chapter 8—Economics 8–15 L = (837.24) 0.12(1.12)20 (1.12) 20 − 1 = $112.09 LF = 112.09 60 =1.868 The yearly electricity bill after 20 years is 60(1.08) 20 = $279.66. The levelized annual cost of $112.09 is equivalent to the series of actual annual costs which increase from $60 to $279.66. The levelized cost of electricity over this period would be just the levelizing factor times the current cost, or (0.05)(1.868) = $0.0934/kWh. 3 REVENUE REQUIREMENTS Wind generators connected to the utility grid may not be owned by the utility but can still be treated by basically the same economic analysis. Different ownership may change the interest rates or the tax status, but the same analysis procedure still applies. We shall, therefore, examine the revenue requirements of the electric utility industry in general, and then specialize our results to wind generators. The electric utility industry has five unique characteristics that set it apart from other industries[3]: 1. The industry is capital intensive. For a given utility, over half of the revenue from the sale of electricity may be allocated to sustain the capital investment. An even greater fraction is required for generation without fuel costs, such as wind. 2. The industry’s investment items generally are long-lived, often in the range 30 to 40 years. 3. The industry has a relatively constant flow of revenue dollars on an annual basis compared to other industries. 4. The industry’s product demand and usage is determined by the customer. 5. The industry is mandated to provide reliable, low-cost, environmentally acceptable electricity and for the most part is regulated by government agencies. These characteristics make the revenue requirement approach to economic studies the most logical of the possible techniques. In this approach, the revenue that would be required to sustain a given alternative is determined and compared to a similarly derived revenue of every other alternative. This method determines the revenue required from the utility customers Wind Energy Systems by Dr. Gary L. Johnson November 21, 2001
Chapter 8—Economics 8–16 and the rates for electricity they must pay, and therefore helps the regulators in their role of insuring an adequate electricity supply at the lowest possible cost. Revenue requirements consist of two components, fixed costs and variable costs, as illustrated in Fig. 6. Fixed costs include debt repayment, depreciation, income taxes, property taxes, and insurance. Variable costs include fuel, operating, and maintenance costs. Utilities do not usually pay for generating plants from current revenue because it would require present customers to pay for items which would benefit other customers as much as 40 years into the future and because the relatively constant revenue dollars would not normally be adequate to pay for a construction program that may vary widely through time. ✻ Total revenues Profit incentive Equity return Debt return Depreciation Income tax on minimum acceptable return Insurance, misc. taxes, etc. ❄ Minimum ✻ acceptable return ✻ Fixed costs ✻ Revenue ❄ requirements ✻ Fuel costs Variable costs ❄ OM costs All taxes on profit incentive ❄ ❄ Figure 6: Revenue requirements on investment. The cost of a new generating plant, therefore, comes from new financing through the sale of bonds and debentures referred to as debt financing and from the sale of common and preferred stock, referred to as equity financing. The return (the money that the utility must pay for the use of both debt and equity money) is allowed as a revenue requirement for rate-making purposes and is a part of the fixed cost associated with an investment. The other components of the fixed costs include book depreciation (an annual charge to repay the original amount obtained from investors), Federal and local income taxes, property taxes, and insurance. Figure 6 also shows a segment entitled Minimum Acceptable Return that is equal to debt and equity return. This is the lowest amount that investors will accept to provide the funds needed by the utility to make the investment. It should also be noted that total revenues must be greater than revenue requirements. The difference is an additional profit incentive. Wind Energy Systems by Dr. Gary L. Johnson November 21, 2001
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Chapter 8—Economics 8–16<br />
and the rates for electricity they must pay, and therefore helps the regulators in their role of<br />
insuring an adequate electricity supply at the lowest possible cost.<br />
Revenue requirements consist of two components, fixed costs and variable costs, as illustrated<br />
in Fig. 6. Fixed costs include debt repayment, depreciation, income taxes, property<br />
taxes, and insurance. Variable costs include fuel, operating, and maintenance costs. Utilities<br />
do not usually pay for generating plants from current revenue because it would require present<br />
customers to pay for items which would benefit other customers as much as 40 years into the<br />
future and because the relatively constant revenue dollars would not normally be adequate to<br />
pay for a construction program that may vary widely through time.<br />
✻<br />
Total<br />
revenues<br />
Profit incentive<br />
Equity return<br />
Debt return<br />
Depreciation<br />
Income tax on minimum<br />
acceptable return<br />
Insurance, misc.<br />
taxes, etc.<br />
❄<br />
Minimum ✻<br />
acceptable<br />
return<br />
✻<br />
Fixed<br />
costs<br />
✻<br />
Revenue<br />
❄<br />
requirements<br />
✻<br />
Fuel costs<br />
Variable<br />
costs<br />
❄<br />
OM costs<br />
All taxes on<br />
profit incentive<br />
❄<br />
❄<br />
Figure 6: Revenue requirements on investment.<br />
The cost of a new generating plant, therefore, comes from new financing through the sale of<br />
bonds and debentures referred to as debt financing and from the sale of common and preferred<br />
stock, referred to as equity financing. The return (the money that the utility must pay for<br />
the use of both debt and equity money) is allowed as a revenue requirement for rate-making<br />
purposes and is a part of the fixed cost associated with an investment. The other components<br />
of the fixed costs include book depreciation (an annual charge to repay the original amount<br />
obtained from investors), Federal and local income taxes, property taxes, and insurance.<br />
Figure 6 also shows a segment entitled Minimum Acceptable Return that is equal to debt<br />
and equity return. This is the lowest amount that investors will accept to provide the funds<br />
needed by the utility to make the investment. It should also be noted that total revenues<br />
must be greater than revenue requirements. The difference is an additional profit incentive.<br />
Wind Energy Systems by Dr. Gary L. Johnson November 21, 2001
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